To be fair, you can kind of see his reasoning. Allowing banks like Goldman Sachs and Société Générale to cash out their insurance in comatose insurance company AIG for 100 cents on the dollar, the $62.1 billion tab of which would ultimately be paid by the taxpayer, without even trying to get them to take a haircut — well, that just looked so bad. Like Anthony Marshall–forging-his-mother's-signature-on-her-will bad. But what were then–New York Fed President Tim Geithner and his colleagues supposed to do? They didn't have any leverage. They were just the government, and these were big important banks (that they might want to work for someday)! And so, via e-mail, they instructed AIG to tone down certain details of the transaction in their regulatory filing. So, you know, people didn't overreact.
"Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?" Brett Phillips, a New York Fed lawyer wrote in an e-mail [to AIG counsel]. "The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG's announcement and the New York Fed's publication of term sheet summaries."
Of course, now that these e-mail exchanges have been made public by Representative Darrell Issa, it all looks so much worse.